The Supreme Court ruled that Maria Linda R. Farolan was illegally dismissed by Asia Pacific Chartering (Phils.) Inc. The Court emphasized that even when an employer claims “loss of confidence” as grounds for termination, there must be a factual basis demonstrating a willful breach of trust by the employee. This decision clarifies the boundaries of managerial prerogative, ensuring that employers cannot arbitrarily dismiss employees without due process and just cause.

Diminished Sales or Dismal Performance? The Case of an Airline Sales Manager’s Termination

Asia Pacific Chartering (Phils.) Inc. (APC), a general sales agent for Scandinavian Airline System (SAS), hired Maria Linda R. Farolan as its Sales Manager. Citing declining sales revenues, APC terminated Farolan’s employment based on “loss of confidence.” Farolan filed a complaint for illegal dismissal. The legal question at the heart of this case is whether APC had sufficient justification to terminate Farolan’s employment, particularly considering the requirements of due process and just cause under the Labor Code.

The Labor Arbiter initially ruled in favor of Farolan, finding her dismissal to be without just cause and effected with malice. The National Labor Relations Commission (NLRC) reversed this decision, siding with APC and upholding the employer’s right to terminate employees based on loss of trust and confidence. The Court of Appeals, however, reversed the NLRC’s decision, reinstating the Labor Arbiter’s ruling with modifications. This brought the case to the Supreme Court for final resolution.

The Supreme Court emphasized that a valid dismissal requires both procedural and substantive due process. Procedural due process means that the employee must be given the opportunity to be heard and to defend themselves. Substantive due process requires that the dismissal must be for a valid cause as provided in Article 282 of the Labor Code or any of the authorized causes under Articles 283 and 284 of the same Code. The Court highlighted that Farolan was not afforded due process, as she was not given a written notice stating the specific grounds for her dismissal nor an opportunity to present evidence in her defense.

In termination cases, the employer bears the responsibility of proving that the dismissal is for just cause. APC claimed that Farolan failed to meet management’s expectations by not adopting effective sales and marketing strategies, leading to a decline in SAS sales revenues. APC argued that this failure reflected Farolan’s incompetence and inefficiency. However, the Supreme Court found these claims unsubstantiated.

The Court considered the nature of Farolan’s job as sales manager. While APC described her functions as critical, her actual job description and work standards were not formally documented. This lack of clarity made it difficult to assess whether she had genuinely failed to meet her responsibilities. The absence of a written job description further complicated the determination of whether Farolan’s performance justified the “loss of confidence” cited by APC.

Even assuming Farolan was a managerial employee, the Supreme Court emphasized that “loss of confidence” as a ground for dismissal must be based on a willful breach and founded on clearly established facts. A breach is willful if it is done intentionally, knowingly, and purposely, without justifiable excuse. Farolan’s detailed report explaining the decline in sales revenues, which she attributed to market forces beyond her control, was deemed plausible by the Court. There was no evidence showing that Farolan intentionally neglected her duties or acted in bad faith.

The Court also highlighted two letters sent by SAS to Farolan in 1994, which contradicted APC’s claims of her poor performance. The first letter congratulated Farolan and another employee for exceeding sales targets in April 1994. The second letter, while noting that sales for June 1994 did not reach the target in one category, acknowledged that Farolan had “managed very well” in another. These letters indicated that Farolan was, at times, meeting or exceeding expectations, undermining APC’s argument that she was grossly inefficient and incompetent.

Furthermore, the Court distinguished this case from others cited by APC. In Grand Motor Parts Corp. v. Minister of Labor et al., the employee was probationary and had failed to submit required reports and violated company policy. In Buiser et al. v. Legardo, the Court held that failure to observe prescribed standards of work due to inefficiency may be just cause for dismissal. However, APC did not demonstrate that Farolan failed to observe any prescribed standards or that her performance was due to inefficiency. Given Farolan’s extensive experience in the travel industry, the Court found it unreasonable to discharge her for alleged incompetency.

The Supreme Court concluded that Farolan was illegally dismissed and was entitled to reinstatement without loss of seniority rights and backwages. However, since reinstatement was no longer feasible due to the termination of the GSA contract between SAS and APC, the Court upheld the award of separation pay. The Court also addressed the award of moral and exemplary damages. Moral damages are warranted when the dismissal of an employee is attended by bad faith or is done in a manner contrary to morals, good customs, or public policy. Exemplary damages may be awarded to set an example for others. The Court reduced the amounts of moral and exemplary damages awarded, finding the original amounts excessive given the circumstances.

FAQs

What was the key issue in this case?	The key issue was whether Maria Linda R. Farolan’s dismissal by Asia Pacific Chartering (Phils.) Inc. was legal, considering the requirements of due process and just cause under the Labor Code. The Court had to determine if the employer’s claim of “loss of confidence” was sufficiently justified.
What is procedural due process in the context of employee dismissal?	Procedural due process means that an employee must be given the opportunity to be heard and to defend themselves before being dismissed. This includes receiving a written notice stating the specific grounds for dismissal and being given a chance to present evidence in their defense.
What does it mean for an employer to prove “just cause” for dismissal?	To prove just cause, the employer must show that the employee’s actions or failures constitute a valid reason for termination under the Labor Code. This includes demonstrating that the employee’s conduct falls under one of the grounds for dismissal, such as serious misconduct, willful disobedience, gross neglect of duty, fraud, or loss of trust and confidence.
What is the significance of the “loss of confidence” argument in this case?	“Loss of confidence” is a valid ground for dismissing an employee, but it must be based on a willful breach of trust and founded on clearly established facts. The employer cannot arbitrarily claim loss of confidence without providing evidence that the employee intentionally acted in a way that betrayed the employer’s trust.
How did the Court assess whether Farolan’s performance justified her dismissal?	The Court examined Farolan’s job description, her report explaining the decline in sales revenues, and letters from SAS acknowledging her performance. It found that the lack of a formal job description and the plausibility of her explanations undermined the employer’s claim that she was incompetent.
What were the letters from SAS and why were they important?	The letters from SAS, addressed to Farolan, contradicted APC’s claims of her poor performance. One letter congratulated her for exceeding sales targets, while another acknowledged her good management in a specific category. These letters suggested that Farolan was not consistently underperforming.
What is the difference between moral and exemplary damages?	Moral damages are awarded to compensate for mental anguish, social humiliation, and similar suffering resulting from the illegal dismissal. Exemplary damages are awarded to set an example for others and to deter similar misconduct by employers.
What factors did the Court consider when reducing the amount of damages awarded?	The Court considered the business, social, and financial position of both the employee and the employer. It found the original amounts of moral and exemplary damages excessive and reduced them to more reasonable amounts.
What is separation pay and when is an employee entitled to it?	Separation pay is a monetary benefit given to an employee who is terminated due to causes authorized by law, such as redundancy or retrenchment. In cases of illegal dismissal, separation pay may be awarded if reinstatement is not feasible.
What is the practical implication of this ruling for employers?	This ruling emphasizes the importance of providing due process and having a factual basis for dismissing employees, especially when citing “loss of confidence.” Employers must ensure that they have clear job descriptions and documented evidence of poor performance before terminating an employee.

This case serves as a reminder that employers must adhere to the principles of due process and just cause when terminating employees. The ruling reinforces the importance of fair treatment and the need for employers to provide concrete evidence when claiming “loss of confidence” as grounds for dismissal. This ensures employees are protected from arbitrary and unjust terminations, safeguarding their rights under the Labor Code.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: ASIA PACIFIC CHARTERING (PHILS.) INC. vs. MARIA LINDA R. FAROLAN, G.R. No. 151370, December 04, 2002